“No amount of sophistication is going to allay the fact that all of your knowledge is about the past and all your decisions are about the future.” — Howard Marks, CFA
Oaktree Capital Management co-chair Howard Marks, CFA, sat down with Bloomberg senior editor John Authers at the 73rd CFA Institute Annual Virtual Conference and offered an illuminating glimpse into the thought processes that have driven his decades-long career in high-yield fixed-income markets.
Two patterns stand out: Being different and being right.
“Superior investing has to come from correct idiosyncratic decisions,” Marks explained. “You have to depart from what they’re doing for a reason.”
He went on to highlight six insights that have helped frame his investment philosophy.
1. View Market Movements Constructively
Investors tend to perceive market activity through the prism of boom-and-bust cycles and anticipate future movements based on past patterns. “The cycle, generally speaking,” Marks explained, “is a series of up and down oscillations around a central trend line.”
But the conventional terms that describe these market movements — boom and bust, up and down — carry connotations that can influence an investor’s perspective and create a distortive effect. So Marks avoids them.
“I tend to think of them, more productively, as excesses and corrections,” he said.
2. Know What You Don’t Know
The importance of intellectual humility, of being aware that there are limits to your knowledge, was a recurring theme in Marks and Authers’s conversation.
The current financial crisis, in particular, serves as a vivid case in point. Since its principal cause — a global health pandemic — is without recent precedent or parallel, investment expertise and market experience that might inform the response to, say, a conventional asset bubble or debt crisis are of little to no use.
“It’s so silly for an investor to build his investment conclusions around his view of what the disease holds when he knows nothing about it,” Marks said. “You shouldn’t make it up on your own, you should look to the experts.”